Applying for a business loan is one of the options to get funding to start a business (start up loans) or fix cash flow problems (cash flow loan). A qualified borrower can get a loan from a bank or lender to cover the costs of running a business, which include: lease, equipment and inventory, and staff wages.
Before applying for a business loan, you have to decide what type of business loan works for you. Here are the different types of business loans to help you make a decision. Consider how each loan will impact you and your business.
A business overdraft is an available credit which can be withdrawn for an amount greater than the balance in your business debit account. This means you can continually make withdrawals even if the account is empty, which gives flexibility in your cash flow.
Case in point: You can pay your employees on time whether or not your clients have paid you in a timely manner. This is particularly helpful for businesses that hire seasonal workers.
Just like a credit card, interest is charged on the amount overdrawn until it’s repaid. You may have to pay fees and charges as well — so, it is advisable to make repayments quickly as interest rolls over. An overdraft is usually payable on demand. If the lender demands payment, it must be repaid immediately.
A business overdraft can use business assets or property (commercial, residential, or rural) as security. This type of overdraft is a secured line of credit. This way, the lender will be able to sell the asset if you do not repay the loan in time.
Notes: A business overdraft comes with a maximum credit limit, which varies depending on the financial institution.
Secured Business Loans
A secured business loan requires the use of an asset, such as a property or another business, as security against the loan. The loan is secured by the residual value of that asset. This usually allows you to borrow on a competitive or lower interest rate. If you’re unable to make repayments, the lender can enforce the security by selling your asset to cover your debt.
Aside from commercial and residential properties as security, you can also use other asset, such as a piece of equipment. If you own one or more valuable assets and you want to borrow a large amount, a secured business loan could be the right choice for you.
Although secured business loans are most commonly offered by banks and traditional lenders, some short term secured loans are also available from alternative lenders.
Unsecured Business Loans
With unsecured business loans, you can get quick funding without risking your assets. Get funds in as little as 24 hours with no collateral involved. Although expect higher interest rates or a smaller loan amount.
Unsecured business loans can be used if you’re experiencing cash flow problems or maxed out credit. Perhaps you’re looking to expand your business with new real estate or equipment. If so, you may want to consider this type of loan. These loans can offer upfront lump-sum funds or a line of credit.
Make sure you understand the difference between fixed and variable interest rates. If you have a low profit margin, beware of variable interest rates that may rise above your ability to repay.
- Fixed — A fixed interest rate is set by your lender for a period of time (usually between one and five years).
- Variable — The interest rate on a variable business loan can be changed from month to month at the discretion of the lender. Be aware on your interest rate as any changes will impact your repayments.
One-off fees may include application fees, exit/discharge fees, and termination fees.
With an online application process that’s as simple as possible, Cigno Business Solutions offers unsecured business loans which are catered mostly to small businesses. CBS offers a flexible range of loans up to $10,000.
You’ll just need to have a registered ABN, as well as a 90-day bank statement in order to complete the application. Contact the CBS team directly for enquiries on eligibility, requirements, and other information to better your chances for approval. Don’t forget to check out CBS’s Privacy & Credit, Disclosures & Authorisations, Responsible Lending Criteria for more details.
You can start the application process here!